Steven Joyce, Christopher Finlayson

16 December, 2013

Incentive changes for a sustainable NZ screen industry

The Government today announced changes to the structure and level of support for overseas and New Zealand film and television productions to ensure the further development of New Zealand’s screen industry.

The new changes are designed to encourage the growth of mid-sized New Zealand-based productions that can compete successfully on the world stage; while also increasing the competitiveness of our incentives for international productions in the short to medium term.

A new consolidated fund will provide an internationally competitive incentive of 20 per cent of qualifying costs of international productions made locally, with a further 5 per cent available where productions can demonstrate significant economic benefits and activities to strengthen the local industry. Medium-sized productions (between $15 million and $50 million) which feature New Zealand content and significant local creative control will qualify for more support than previously, in order to harness and grow the benefits from local intellectual property.

“These changes will help ensure a screen industry that is more sustainable, brings greater long-term economic benefits to New Zealand, and avoids the peaks and troughs that are solely dependent on large international productions,” Mr Joyce says.

“New Zealand is recognised internationally for our world-class expertise in making quality film and television. Our screen industry has grown significantly over the 15 years and is an important contributor to our economy and to our international profile.

“New Zealand has a lot to offer with a skilled and capable workforce, flexible employment laws, proven expertise in post-production, natural scenery and competitive labour costs.

“In recent months there has been a sharp downturn in international production activity in New Zealand for both film and TV. This is due to a combination of factors, including increasingly generous grant rebates and tax relief offered by other countries.

“To support and develop our screen sector, the Government is altering our screen production incentives to both encourage more mid-sized locally-driven productions and attract more international productions while our own domestic industry develops – without engaging in a ‘race to the bottom’ mentality,” Mr Joyce says.

“We want to protect and enhance the wider economic benefits from the screen sector including tourism and boosting New Zealand’s international profile, while at the same time developing a more sustainable local industry that is less dependent on international productions,” Mr Finlayson says.

“Changing our screen production incentives will provide breathing space to develop a more sustainable local screen industry that generates more Kiwi-owned intellectual property.”

Changes from 1 April 2014 include:

The Large Budget Screen Production Grant (LBSPG) and Screen Production Incentive Fund (SPIF) will be combined to form a single scheme called the New Zealand Screen Production Grant (NZSPG)

Existing rebates of 15 per cent for the LBSPG and up to 40 per cent for the SPIF will be replaced by two rebates: 20 per cent (plus an extra 5 per cent for productions that meet extra criteria); and up to 40 per cent for New Zealand productions

For international productions, 20 per cent will become the new baseline rebate accessible on the basis of qualifying New Zealand production expenditure over certain qualifying expenditure thresholds. To gain an additional 5 per cent rebate, applicants will need to meet a points test relating to significant economic benefits. The extra 5 per cent rebate replaces the existing ‘additional grant’ which will be discontinued

For New Zealand productions, a two tier system will be created. ‘New Zealand productions’ means productions with very high New Zealand content, such as a New Zealand story and a high level of New Zealand creative control

For New Zealand film and television productions of up to $15 million, it will be necessary to gain a certain number of points on the New Zealand content points test to gain the 40 per cent rebate, payable as a grant.

For New Zealand film and television productions in excess of $15 million and up to a maximum of $50 million, support will be provided as an equity share as opposed to a grant payment and be subject to scoring a certain number of points on a points test relating to business as well as cultural factors.

“These announcements build on the changes the Government made in July to lower the qualifying expenditure threshold for TV productions and dropping qualifying expenditure for the Post, Digital and Visual Grant,” Mr Finlayson says.

“The Government will be consulting on these changes with the local screen industry early next year particularly how the new points system will be implemented.”

“The global screen industry is dynamic and rapidly changing and these new incentives will ensure we continue to attract overseas investment while at the same time developing our local screen industry so more New Zealand-made stories can successfully compete on the international stage,” Mr Joyce says.

“It is intended that Ministers will keep reviewing these incentives over time, with the overall aim of encouraging more New Zealand-sourced creative intellectual property which is less dependent on competing with other countries’ international incentive schemes.”

Attached: Questions & Answers - Cabinet Paper and Minute

Questions & Answers

Why are changes being made to the screen production incentives?

The screen industry in New Zealand has been becoming more dependent on international production in recent years. This has been coupled with a recent ramping up of film production incentives for international productions in competing countries. In recent months there has been a sharp downturn in international activity in New Zealand for both film and television.

The Government has therefore decided to alter the screen incentive regime to encourage a stronger domestically-sourced screen industry that over time will be less dependent on taxpayer incentives. At the same time the Government is increasing the incentives for international productions in the short-to-medium term to ensure that we continue to attract high-value international productions for New Zealand while developing the domestic industry.

What are the changes being made?

The Large Budget Screen Production Grant (Large Budget Grant) and Screen Production Incentive Fund (SPIF) will be combined to form one new, uncapped, demand-driven scheme called the New Zealand Screen Production Grant (NZSPG), effective from 1 April 2014.

The current rebates of 15 per cent for the Large Budget Grant and up to 40 per cent for SPIF will be replaced by two rebates: 20 per cent (plus an extra 5 per cent for productions that meet additional criteria), and 40 per cent.

How will the rebates be applied?

For international productions, 20 per cent will become the new baseline rebate. Eligibility for the rebate will be assessed on the basis of qualifying New Zealand production expenditure (QNZPE) over certain qualifying expenditure thresholds. To gain an additional 5 per cent rebate, applicants will need to meet a points test relating to significant economic benefits, including the size of the proposed expenditure and activities which strengthen the industry. The additional 5 per cent rebate will operate instead of the “Additional Grant” (see below) which is being discontinued.

For New Zealand productions, a two-tier system will be created, and the level of support for New Zealand television productions will rise from 20 per cent to 40 per cent in line with the existing level for film. For New Zealand productions of up to $15 million QNZPE, it would be necessary to gain a certain number of points on the New Zealand content points test in order to qualify for the grant (as at present). New Zealand productions means projects with either very high New Zealand cultural content (e.g. a New Zealand story); or a high level of New Zealand creative control and intellectual property.

The second tier is for New Zealand productions with QNZPE in excess of $15 million and up to a maximum of $50 million. Support for these productions will be provided as an equity share as opposed to a grant payment and be subject to scoring a certain number of points on a points test relating to business as well as cultural factors.

Why does the Government provide assistance to the screen sector?

The Government provides assistance to the screen sector for both economic and cultural reasons.

The screen sector produces a range of unique direct and indirect economic benefits to New Zealand. These include lifting the international profile of New Zealand on the world stage, and attracting more tourists and other people-to-people linkages. This profiling of New Zealand provides benefits to other industries and the country generally.

Government assistance also allows New Zealanders to produce and see their own stories, which would otherwise be difficult because of New Zealand’s small scale. International productions also assist with this, by providing a stronger workflow for our domestic workforce.

How will the changes support screen production in New Zealand?

The changes will enhance domestic production so that larger budget, more commercial New Zealand stories are made. They will also attract more international film and television to New Zealand.

Both forms of screen production are required if the industry is to build a more sustainable base: international productions provide a workflow of employment for skilled technicians and creatives. New Zealand content provides an opportunity for New Zealanders to start moving into developing and securing more intellectual property (IP), while also telling stories that New Zealanders and the world want to see and hear.

The changes recognise that global distribution platforms are rapidly changing, with traditional broadcasting methods declining, and web-based distribution becoming much more prominent.

Parts of the digital and creative industries are growing rapidly both as export industries and in showcasing New Zealand’s creativity, and it is this success that the screen sector will need to emulate if it is to move to a more sustainable basis.

These changes will encourage New Zealand’s screen industry to become more adept at taking advantage of this dynamic and rapidly changing environment and become more entrepreneurial.

They will incentivise more local producers to develop content for the New Zealand and international market, help build scale in the industry, and retain key IP ownership in New Zealand.

How will these changes support New Zealand content screen productions?

The Government is uncapping its support for domestic film and television productions. The overall budget cap of $63.5 million over five years is being replaced by an uncapped provision and caps on individual productions are being increased to $20 million (40 per cent of $50 million QNZPE). This will allow larger-budget New Zealand screen productions to access funding. Because the new provision is uncapped, productions of all sizes will have an equal opportunity to qualify for funding, i.e. smaller-budget productions will not be crowded out by larger-budget productions.

The requirements for domestic projects to have strong New Zealand subject matter or a New Zealand story will be modified to place more emphasis on strong New Zealand creative input and/or creative control (e.g. IP owned in New Zealand, New Zealand producers/directors participating). This will support local screen companies looking to sell local product offshore not being constrained by the small domestic market.

How will these changes support the development of more New Zealand screen IP?

Building a strong base of local New Zealand screen companies and talented individuals developing unique IP is critical to the long-term sustainability of the local industry. Recent growth in the sector has been concentrated in “fee for service” or contracting work servicing incoming large budget productions. This work is an important source of income for local companies and will continue to be important into the future. However, the Government has an interest in broadening and diversifying the growth base of the industry to include more IP creation as has occurred over time with most other internationally-competitive New Zealand industries.

How will these changes affect changes made to the Large Budget Screen Production Grant earlier this year?

For the most part, the criteria changes to the Large Budget Grant, effective from 1 August and 1 October 2013, will remain in place when the Large Budget Grant and SPIF are combined into a single scheme.

International productions can continue to apply for a rebate on qualifying New Zealand production expenditure (QNZPE) once they have spent at least:

$15 million on QNZPE for a feature film

$4 million on QNZPE for a television production

$1 million on QNZPE for a post, digital and visual effects project.

Criteria introduced earlier this year relating to international television production in New Zealand remains the same with:

no minimum per commercial hour expenditure requirement (but a $4 million expenditure threshold)

production duration extended to 24 months

eligible distribution/delivery platforms to include all forms of television, DVD/Blu-ray, internet, video-on-demand, mobile phone or any other public mass distribution device

applicants able to apply for grants for pilots and subsequent series separately (normally an applicant can only apply once for the same screen production).

What happens to the Additional Grant with these changes?

An Additional Grant of up to NZ$9.75 million has been available to screen productions that have QNZPE of $200 million or more. The Additional Grant was calculated on any guaranteed deferments or participation payments that are payable to New Zealand tax residents and are paid within three years from the first commercial release of the production.

The Additional Grant will cease to exist from 1 April 2014. It will be replaced by the additional 5 per cent rebate available for productions able to demonstrate significant economic benefits for New Zealand.

How will these changes impact criteria changes made to Screen Production Incentive Fund earlier this year?

Further work will be required, informed by screen industry consultation, to confirm changes to the SPIF, including minimum expenditure thresholds and eligible formats.

How will the points framework operate?

To gain the additional 5 per cent rebate on top of the baseline rate of 20 per cent, it will be necessary to meet a points test relating to significant economic benefits such as the size of the proposed expenditure, employment of New Zealanders in key roles.

For New Zealand productions, the existing SPIF New Zealand content test will serve as a basis for the new points test. It is envisaged that this test will be modified to allow more flexibility for New Zealand productions below $15 million to meet the test, e.g. where they are able to demonstrate export potential. An element of discretion will also be introduced for productions above $15 million to ensure that only New Zealand productions with high production values and business promise qualify for funding. Proposed arrangements will be fully discussed with industry and other government funding agencies before final decisions are made.

When will the full details of the new scheme be available?

The detailed criteria for the New Zealand Screen Production will be finalised early in 2014 in consultation with the screen industry. Full details will be published on the New Zealand Film Commission website by 1 April 2014.